After roughly 20 years in business, LegalZoom (LZ 1.97%) is now a publicly traded company. And while the platform certainly makes things like wills and LLC formation easier for users, is the company worthy of a long-term investment? In this Fool Live video clip, recorded on July 14, Fool.com contributor Toby Bordelon explains to colleague Brian Withers why he's a little skeptical.
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Toby Bordelon: The company I'm looking at, recent IPO, LegalZoom. I'm sure some of you have heard of this. The company has been around about 20 years. I remember it back when I was in law school. It was a new thing then the idea was that you could automate a lot of these legal processes, the basic stuff, corporate formations, stuff like LLCs, really basic wills, that idea. You start to get some traction, they won the first new ones in the field. They thought about an IPO like 10 years ago ended up not doing that and now they're back with it. I was actually thinking about this Brian for the 10X show.
Brian Withers: Yeah.
Bordelon: That I subbed in for you on Monday. But I started looking at it like I'm not sure, part of what turned me off is the market cap right now at $7.3 billion. A little bit of concern about that. Their market share is not what you would expect from a 20-year-old company that was a first mover in the space. I would expect it to have been a little bit more than they are now. I don't know it and maybe this is because of the potential market really isn't that big. I think a lot of this people do themselves or local lawyer is still handle this or there are other just paper processing companies that do this. I wonder where the growth is going to come from again, they've been around for 20 years. You had to look at this, why are the next 20 years going to be better than the last 20? That's what I'm still trying to get my head around. In some ways this looks like insiders cashing out, putting the shares out there so that the P/E backers can sell out and that makes me a little nervous. Lockup expires in six months so I would tend to be careful until then to see how many shares that the insiders start selling down. The company took about 500 million from the offering, but what they say they are doing with it as they're mostly paying off debt. This is just a recap they're not actually investing more of the business, they're just taking the IPO proceeds, paying off debt. Which can be good, but it doesn't suggest big plans for expansion. They are cash flow positive, $93 million in operating cash flow last year, but again, $93 million operating cash flow, does that support a $7 billion valuation for a 20-year-old company? I got concerns about that. I want to see a couple earnings reports as a public company, to get a better sense of what their future potential is, what they're actually doing. There's potential here. I think this market could be big, but my big issues, I'd be a lot more excited if this was a three-year-old company than 20-year-old company in terms of what the future looks like. Still some questions, I'm going to keep looking into this, but it's interesting and glad to see them on the markets now. Something we can look into and play with a little bit.
Withers: Yeah. Toby, we did a deep dive on Intuit and I think the Intuit is in a better position just because there is the repeat purchase or even on the accounting side, a subscription ability. Whereas I would think LegalZoom, you do your will and then you're done. It's not like I need legal services every month, and if I do need legal services every month, maybe I need a lawyer on speed dial
Bordelon: Well, that's exactly the thing. The market for repeat services is an individual, it's small businesses, entrepreneurs. But again, those people like you said, might have their own lawyer that they're using and more comfortable with who is doing a lot of things for them. You update your will from time to time, but it's not like an every year thing, right?